Question: On January 1 2010 Perry Company purchased 80 of Selby

On January 1, 2010, Perry Company purchased 80% of Selby Company for $960,000. At that time Selby had capital stock outstanding of $400,000 and retained earnings of $400,000. The fair value of Selby Company’s assets and liabilities is equal to their book value except for the following:

One-half of the inventory was sold in 2010; the remainder was sold in 2011. At the end of 2010, Perry Company had in its ending inventory $54,000 of merchandise it had purchased from Selby Company during the year. Selby Company sold the merchandise at 20% above cost. During 2011, Perry Company sold merchandise to Selby Company for $300,000 at a markup of 20% of the selling price. At December 31, 2011, Selby still had merchandise that it purchased from Perry Company for $78,000 in its inventory.

Financial data for 2011 are presented here:

A. Prepare the consolidated statements workpaper for the year ended December 31, 2011.
B. Calculate consolidated retained earnings on December 31, 2011, using the analytical or t-account approach.
C. If you completed Problem 6-14, compare the consolidated balances obtained in requirement A with those obtained in thoseproblems.
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